A city constructed a power plant at a cost of $600 million. The facility has an estimated useful life of 50 years. At the end of the year in which the plant went on-line, city engineers determine that if the plant had to be decommissioned at the balance sheet date, then it would cost approximately $100 million
to satisfy all federal and state regulatory requirements.
1. Prepare an appropriate entry to record the estimated decommissioning costs in the city's government-wide statements when the plant went on-line.
2. Record an entry to record the first-year's expense.
3. At the end of the following year, city engineers estimated that owing to increases in the prices of the equipment that would be needed to retire the plant, estimated costs had increased to $105 million. Prepare a journal entry to record the increase in the current value of the decommissioning costs.
4. Prepare an entry to record the second-year expense.
5. After 35 years, the city concluded that the plant was not economically viable and decided to decommission the plant. Owing to inflation and various changes in technology, the balance in its asset retirement obligation liability account at the time was $240 million. Engineers estimated that the decommissioning process would take at least three years. In the first year, the city incurred $155 in decommissioning costs. Prepare an entry to record the first year's decommissioning costs.
6. What other entry would the city have to make to recognize that it decommissioned the plant earlier than expected?
7. How, if at all, would these events and transactions be recorded in the city's enterprise fund that is used to account for the facility?